January 27, 2017
On January 12, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) clarified the circumstances under which compliance officers, consultants, and attorneys can tell their clients, employees, or others whether a transaction is prohibited under U.S. sanctions laws.
OFAC received numerous inquiries, many from foreign companies at outreach events, such as conferences or seminars, relating to whether U.S. persons, including U.S. attorneys and compliance personnel, may provide certain services to “covered persons” relating to the requirements of U.S. sanctions laws.
The guidance document does not reflect a change in OFAC’s policy, but makes sure that people understand what is allowed.
Confusion
The guidance clarifies several issues that have dogged U.S. compliance attorneys and other professionals for decades, in particular when they cross the line into “facilitating” a transaction in violation of sanctions laws.
It has long been understood that U.S. attorneys can advise on the scope and applicability of U.S. sanctions laws, but there has been some confusion about whether a U.S. person can “approve” a transaction by a non-U.S. person that would implicate U.S. sanctions and what exactly it would mean to “approve” a transaction. For example, many in-house attorneys have steered clear of giving an explicit “ok” to a sanctioned country transaction by a foreign affiliate, instead opting simply to advise that the transaction is not prohibited under U.S. law.
OFAC goes as far as to say that U.S. person can provide a legal opinion or clearance about the legality of a transaction implicating U.S. sanctions, including by executing transaction documents pertaining to the legality of a transaction.
“This new clarity from OFAC does provide some additional comfort for compliance professionals,” says Peter Jeydel, Associate at the law firm of Steptoe & Johnson LLP, in Washington D.C.
“Covered Persons”
For purposes of the guidance, OFAC explains that “covered persons” are those that can receive compliance services. “Covered persons” means U.S. persons and foreign persons other than any person listed on OFAC’s Specially Designated Nationals and Blocked Persons list, and persons in countries that are subject to U.S. sanctions such as Iran.
In other words, U.S. attorneys and compliance staff, consultants and others are allowed to explain to anyone about U.S. sanctions laws, as long as the persons receiving the guidance are also not listed on the OFAC list or otherwise subject to sanctions on the import or export of services.
The guidance applies to the provision of services to covered persons by U.S. persons regardless of whether the U.S. person is self-employed, employed by a U.S. entity, or employed by a non-U.S. entity, and regardless of whether the U.S. person is considered “in-house” personnel or is an external attorney, consultant, or other person providing the services.
According to the guidance, U.S. persons have been able to provide, and may continue to provide, the services below relating to the requirements of U.S. sanctions laws to covered persons.
Providing information or Opinion
The guidance says that is not prohibited to provide information or guidance regarding the requirements of U.S. sanctions laws administered by OFAC, including statutes, regulations, and Executive orders.
It also explains that a U.S. attorney may provide an opinion on the legality of specific transactions under U.S. sanctions laws regardless of whether it would be prohibited for a U.S. person to engage in those transactions.
This means, for example, that a U.S. attorney can tell his client, a U.K bank in Amsterdam about whether it’s allowed for them under U.S. law to conduct a specific transaction involving Iran, even though this transaction would be prohibited for a U.S. person.
“Since the JCPA, which postponed many EU sanctions against Iran on 16 January 2016, many covered foreign persons would like to start new business with Iran, but find that US sanctions and export controls still prohibit almost all of the transactions if the U.S. is involved in the transactions in any way. It is therefore more and more important to acquire the proper advice on transactions, whether U.S. sanctions laws and regulations would prohibit such a transaction, or not,” explains Martijn Feldbrugge, from Business and Sanctions Consulting Netherlands, based in Munich, Germany.
Importation of Services
The guidance further says that U.S. persons may solicit information from covered persons and conduct research to make a determination as to the legality of transactions under U.S. sanctions laws provided there is no prohibited importation of services.
For example, that same U.S. attorney representing the UK bank could not retain an Iran-based due diligence firm to provide information about a prospective counterparty in Iran, because that would constitute the prohibited importation of services from Iran.
No Carte Blanche
OFAC says that the guidance does not describe every allowable service relating to the requirements of U.S. sanctions laws.
U.S. persons, wherever located, may not “otherwise approve, finance, facilitate, or guarantee any transaction by a foreign person, including one that meets the definition of a covered person, as defined above, where the transaction by that foreign person would be prohibited by [OFAC’s regulations] if performed by a U.S. person or within the United States,” according to the guidance.
This means that, for example, that a U.S. financial institution, cannot guarantee a transaction by a German company where the transaction –even though it would be allowed under German and EU law- would be prohibited under OFAC rules and regulations if performed by a U.S. company.
“For compliance professionals, there remains an unclear line that they cannot cross into “facilitating” transactions and “exporting” services to sanctioned countries like Iran, such as by negotiating and executing commercial terms unrelated to compliance advice,” says Mr. Jeydel.
“This guidance does not provide a carte blanche for U.S. persons to assist with sanctioned country or sanctioned person transactions, simply by virtue of the fact that you are wearing a compliance hat,” he adds.